Big Upside for the France ETF

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There is evidence buying one period’s lagging stocks or ETFs can yield big returns as those laggards morph into leaders.

It happened earlier this year with gold miners. Then there was the recent rebound in shares of emerging markets equities and ETFs. Investors looking for a European laggard might want to checkout France. Societe Generale expects France’s benchmark CAC40 to hit 5,000 this year and 7,000 by 2016, CNBC reports. The index closed at 4,345 Tuesday.

As the bank noted to CNBC, the S&P 500, Germany’s DAX and the U.K.’s FTSE have all hit new all-time highs, but the CAC 40 is nowhere close to its September 2000 high of 6,900.

Of course a rally in French stocks would benefit the iShares MSCI France ETF (NYSEArca: EWQ), though it difficult to call the lone France ETF a laggard. Over the past 24 months, EWQ has outperformed the iShares MSCI United Kingdom ETF (NYSEArca: EWU), the iShares MSCI Germany ETF (NYSEArca: EWG) and the Vanguard FTSE Europe ETF (NYSEArca: VGK). [European ETFs Get a Lift From ECB]

While some investors remain skeptical of France’s political policies, others do not view politics as the primary reason French stocks are recovering. The Eurozone recovery and stabilizing earnings and improved profits are boosting French shares, Beat Wittmann of TCMG told CNBC.

There is also the possibility of quantitative easing from the European Central Bank to bolster French stocks and EWQ. At the International Monetary Fund’s spring meeting Saturday, European Central Bank President Mario Draghi said that added euro strength would warrant ECB action, which could include the central bank’s own version of quantitative easing. [ETFs for Draghi Talk]

Although EWQ has not recently suffered at the hands of the strong euro, it is worth noting the ETF to exporters in the industrial and consumer discretionary sectors, two groups that combine for a nearly of the fund’s weight, according to iShares data.

Additionally, French stocks, perhaps by way of their “laggard” status to these markets, are less expensive than their British, German and Swiss counterparts. French 10-year government bonds now yield less than 2% for the first time in almost a year, indicating investors have faith in the country despite it grappling with budget deficit issues. Investors can grab a trailing 12-month yield of 2.37% on EWQ, 55 basis points above the yield on the S&P 500. [Say Yes to the France ETF]